Time to Start Planning for New Federal Overtime Rule

The U.S. Department of Labor is anticipated to set a new salary threshold for the white-collar exemptions to overtime pay under the Fair Labor Standards Act (FLSA), but businesses should start to plan for changes now.

The Department of Labor may only give businesses a few months between the announcement of the final ruling and its effective date to become compliant, but employers shouldn’t worry about the small compliance window as there are steps that can be taken to prepare.

President Donald Trump’s administration would like to get a new rule in place as soon as possible in the event there is a political shift after the 2020 election. With that being said here are some ways to prepare for the new federal overtime rule.

Evaluating your employees and their salaries is an important first step to prepare for the new overtime rule.

The first step to prepare for any changes is to determine who has the potential to be impacted by the new overtime rule. Take note of any employees who are near the proposed cut-off as they are likely to be affected.

Evaluate Potentially Affected Employees

Employers will first want to determine who has the potential to be affected by this new overtime rule. They should pull data for exempt workers who are close to earning the proposed cut-off.

Although the exact figure of the new threshold and the data will become effective are still unknown, employers should evaluate their companies pay structure or any exempt employees that earn less than the proposed threshold. You may even want to consider reviewing salaries that are now slightly higher in the event the threshold is adjusted up.

To err on the side of caution employees may also want to look over data for exempt workers earning $37,000 or less.

Keep in mind that under the proposed rule, incentive payments and non-discretionary bonuses which includes commissions may be used to meet up to 10% of the standard salary level –  though the final ruling percentage could be adjusted.

Your business should take the time to review its budgets, consider what positions may need to be restructured, flag any employees who may be able to reclassify to non-exempt or give us a salary increase and try to determine how quickly you could and should Implement changes.

If the new ruling takes effect employers will need to weigh the cost of raising their employee’s salaries above the new threshold or reclassifying employees as non-exempt and having to pay overtime. This decision will vary from one workplace to the next and should be made in consultation with human resources professionals to ensure you are compliant with the new rule.

Reviewing job descriptions and duties is required to ensure they meet exemption criteria. Job duties and descriptions may need to be altered to ensure you remain compliant with the FLSA.

Reviewing job descriptions and duties is an essential step in preparing for any overtime changes. You must ensure that they satisfy exemption criteria or risk the chance of being incompliant.

Review Job Descriptions

Meeting the salary threshold is just one requirement to classify a worker as exempt. Employers should also review job descriptions and duties to ensure they satisfy the exemptions criteria.

The FLSA’s white-collar exemption, which includes executive, administrative, and professional exemptions, has slightly different requirements.

To qualify for the executive employee exemption, all of the following must be met:

  • The employee must be compensated on a salary basis at a rate not less than $455 per week.
  • The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise.
  • The employee must regularly direct the work of at least two or more other full-time employees or their equivalent.
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

To qualify for the administrative employee exemption, all of the following must be met:

  • The employee must be compensated on a salary or fee basis at a rate not less than $455 per week.
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

To qualify for the professional employee exemption, all of the following must be met:

  • The employee must be compensated on a salary or fee basis at a rate not less than $455 per week.
  • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the regular exercise of discretion and judgment.
  • The advanced knowledge must be in a field of science or learning.
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Although the changes to the overtime rule are about salary, the upcoming changes can provide an excellent opportunity for employers to review the job duties for their lowest exempt pay employees and make sure they actually qualify. It’s the perfect time to correct any errors in regards to job duties.

Training may be required if employees will need to use new software, such as time tracking software.

With new overtime changes come changes to the way your business will track employee time. If you don’t have one already, it may be time to invest in time tracking software to ensure any overtime is being accurately monitored and captured.

Develop a Training and Communication Strategy

If a business decides to reclassify its employees to non-exempt status, they will need to determine and track affected employees work time, as well as overtime premiums for any hours worked beyond 40 hours in a workweek.

Employers will need to come up with a communication strategy to ensure that newly classified employees understand that they are not being demoted. It is also essential to be clear that these changes are based on a new government ruling.

In addition, employees who will be required to track their hours, perhaps for the first time, will need training on time tracking procedures. You may even want to consider investing in a time tracking system that can adequately track each employees overtime. By using a time tracking system, you can ensure that you are compliant with the new ruling that comes out and have the documentation to ensure that you remain compliant.

Employers will also need to develop a plan and procedure to manage and limit overtime hours worked by employees that are now considered non-exempt. A time tracking system can also assist with this by monitoring overtime hours and alerting management whenever an employee is nearing overtime.

By taking some initial steps now rather than later can go a long way towards addressing potential issues and ensuring a smooth transition to comply with the new ruling.